Links: 2013-02-07
News links for 7 February 2013
Europe Yield Backup Signals Complacency Bringing New Crisis – Bloomberg
“European leaders lulled into complacency by Mario Draghi’s pledge to buy their bonds may be stumbling toward the next euro-region emergency.
Policy makers are squandering the decline in borrowing costs triggered by the European Central Bank president’s commitment to defend the single currency, leaving the 17-nation bloc’s economy and financial systems vulnerable, according to economists Charles Wyplosz and Paul De Grauwe.
“I don’t see how we avoid having another acute crisis now that governments are so pleased with themselves,” Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a telephone interview. “The wave of optimism we had was unjustified. Key elements of the crisis aren’t being dealt with.””
How the ECB could print money without breaking the law | Emerging Markets
“If the ECB starts buying foreign currency in the markets, it could create new euro liquidity, which would benefit the economy regardless of the success of the currency intervention in actually weakening the euro, Weinberg argued.
“The wrinkle in this programme is that some, if not most, of the euros created by these transactions would go to institutions outside Euroland,” he added.
“However, a growing overhang of euros abroad may well cheapen the currency, amping up the trade and current account surpluses. This would ultimately bring demand into the domestic economy, where reduced slack could combat deflation.””
And we go live to the Dáil… | FT Alphaville
“One very interesting revelation from the Irish finance minister in the Dáil at pixel time…
Nama, Ireland’s bad bank, will buy Anglo’s debt to the Irish central bank using Nama’s bonds “in a way that ensures there is no capital loss for the central bank”. (Emphasis ours.) That appears to be the core of the deal to extricate the bank from ELA. It also sounds like a government guarantee will be transferred over at the same time.”
What would a return of the yen carry trade mean for EMs? | beyondbrics
“Banweja identifies three periods in the last 15 years when the yen significantly declined in trade weighted terms, and what characterised each period. His conclusion: don’t get hung up on the 2004-07 period, “the heydey of the carry trade”. The better comparison is 2000-01, and EM currencies “had a pretty ordinary time of it”.”
The safe asset shortage: Are we too scared, or not scared enough? | The Economist
“the entities capable of issuing safe assets (governments with their own currencies) have been failing to do so in sufficient size to meet investor demand. As a result, real yields have fallen significantly. Desperate to increase returns, savers have been reaching into the refuse bin in search of yield. Before the crisis, they eagerly bought securitised mortgages and asset-backed securities. That strategy did not work out so well, but investors seem to have learned little. Now they are once again taking excessive risks to capture a little extra yield by gobbling up junk bonds (for a good take on some of the risks there, see this piece), CLOs, and new securities backed by risky personal debt. The problem is that there are not enough genuinely safe assets available. Everything else is an inadequate substitute. Central banks may be exacerbating the shortage by buying trillions of dollars worth of safe assets for themselves.”
Apple Rises on Report That It’s Undervalued: San Francisco Mover – Bloomberg
“Apple Inc. rallied in late-morning trading in New York on a report that cited Bill Miller, a fund manager at Legg Mason Inc., as saying that the shares are undervalued.
“The stock is undervalued, it’s ridiculous,” Brian White, an analyst at Topeka Capital Markets Inc., said in an interview.
Apple needs to offer some cash to entice value investors, White said.”
Shades of ’80s in Japanese Stock Rally – WSJ.com
“Japan’s stock market is staging its biggest rally in years on optimism that a faltering yen and economic-stimulus measures will revive corporate profits.
The Nikkei Stock Average vaulted 3.8% on Wednesday to a four-year high of 11463.75. The main catalyst has been the steady slide of the yen. The falling currency has increased the competitiveness of Japan’s exports, providing a respite for Japan’s big industrial conglomerates.”
Ireland awaits ECB debt call; liquidates Anglo Irish | Reuters
“Under Dublin’s new plan, first reported by Reuters on Wednesday, IBRC’s liquidation was necessary so that the Irish government no longer had to make 3.1 billion euros of annual payments on the promissory notes stretching out until 2023. The next payment was due next month.
The government had originally hoped to unveil the liquidation of the former Anglo Irish in conjunction with a deal from the ECB, but the Reuters report meant Dublin had to immediately legislate for its demise.
Finance Minister Michael Noonan told parliament the government could not deny the report and therefore risked destabilizing the bank’s position.
“I would have preferred to be introducing this bill in tandem with a finalized agreement with the European Central Bank,” Noonan said. “But we had to move.””
The Yen Carry Trade is Back, But With a Difference
“Now that the new Abe government in Japan has succeeded in talking the yen down to two-and-a-half year lows and seems to be looking to push the yen even lower, traders are once again using short-term yen borrowings to fund short-term purchases of assets in other, high-yielding currencies such as the Norwegian krone or the perpetual favorite, the Australian dollar.
‘Using the lowest yielder, the yen, to fund purchases of the Australian dollar could generate a 3% annual yield spread, without leverage and before the expenses of any investment fund used to put on the trade,’ writes Hamlin Lovell in the CFA Institute’s Inside Investing publication.
And David Harden, senior commercial dealer at Global Reach Partners, told CNBC Europe, ‘Not only is the yen losing ground because of Abe’s comments and monetary policy. But also, we’re seeing risk appetite improving across the globe and so the yen is weakening because it was a safe-haven currency and now it’s being sold because people are buying risk again.’”
Remember the Yen Carry Trade? Well, It’s Back
“Bargmann at RBS says he expects the dollar/yen rate to reach 100 in the second-half of the year from current levels around 90.
“We are seeing the carry trade, but it is more selective than what we saw in 2004-2007, when money went into all risk assets,” he said. “The reason for this is because fear in financial markets has been replaced by caution following the global financial crisis.””
The One Article You Need to Read About the Postal Service – James Fallows – The Atlantic
“Here’s his argument in brief: Of course the Postal Service has needed to change everything it does because of the electronic revolution. But it is in such serious trouble not because it has resisted progress but because of a series of burdens imposed on it by Congress. One of them is laid out in Strasser’s item: that the USPS, unlike any other organization private or public, is required to pre-fund 75 years’ worth of pensions for employees it has not even yet hired. Without that requirement, it would still be showing a surplus.
Tierney makes the broader point that Congress’ series of conflicting mandates to the Postal Service have put it in an impossible situation — and a situation that some hybrid of Steve Jobs, Warren Buffett, Eric Schmidt, and Sheryl Sandberg would not have been able to solve. A sample of his case:
For decades, postal executives, looking ahead at trend lines that portended financial ruin, have tried to take steps that would put the mail system on a more sustainable footing. They’ve tried, for example, to pare down the enormous network of tens of thousands of post offices. But when they try to shut down costly, inefficient little post offices at rural crossroads, the local congressperson rises up in indignation, a defender of the local community’s “heartbeat.”…
We see in the case of the Postal Service an example of the larger problem of American democracy: members of Congress are so fixated on getting re-elected that rather than serving the will of broad popular majorities, they pay attention to, and heed the wishes of, well organized interest groups that represent tiny minorities of the population.”
No surprise: Microsoft Surface Pro arrives to a mix of cheers and jeers — Tech News and Analysis
“Microsoft’s Surface Pro is now on sale, starting at $899. Early reviews are mixed with the word “compromise” appearing quite often amid the good, the bad, and the ugly.”
Apple grabs more than 20% of global PC market in Q4 2012
“Counting tablets, Apple’s share of worldwide PC shipments surpassed 20 percent for the first time ever during the last quarter of 2012, one research firm reported on Wednesday, with the iPad accounting for one in every six shipped computers.”
Q4 Android U.S. Marketshare Numbers are in, Still Sitting Pretty at 53.4% – Droid Life
“New numbers are in from comScore’s Q4 2012 report, ranking the top five U.S. marketshare contenders. In terms of operating systems, Android is still sitting on the throne with 53.4%, growing from last year’s 52.5%. Following Android is Apple’s iOS at 36.3%, which is quite respectable, considering BlackBerry and Windows make up just a little over 9% when combined. “
Egyptian Currency Reserves Running Critically Low – WSJ.com
“Egypt’s foreign-currency reserves slipped to the critically low level of $13.6 billion at the end of January, the central bank said Tuesday, a day after it took more steps to prop up its currency.
The number falls short of the $15 billion in foreign currency that the International Monetary Fund recommends countries maintain to cover imports for three months, adding to Egypt’s economic desperation.”
Lance Armstrong, sportif le plus détesté des Amèricains
Hohe Verluste: HSH braucht zusätzliche Staatsgarantien – Banken – Unternehmen – Handelsblatt
This German state bank is going to need additional state guarantees according to this article from Handelsblatt
“BlackBerry’s new Z10 smartphone is a record-setter — in two of the first markets in which it debuted, anyway.
BlackBerry said on Wednesday that the Canadian and U.K. launches of the Z10 have been the best of any of its handsets debuts in those regions ever.
“In Canada, yesterday was the best day ever for the first day of a launch of a new BlackBerry smartphone. In fact, it was more than 50 percent better than any other launch day in our history in Canada,” BlackBerry CEO Thorsten Heins said in a statement sent to AllThingsD. “In the U.K., we have seen close to three times our best performance ever for the first week of sales for a BlackBerry smartphone.””
Microsoft Surface Windows 8 Pro Review & Rating | PCMag.com
“The Microsoft Surface Windows 8 Pro is the Windows 8 slate tablet to beat when you need the performance and convenience of a PC in a compact tablet form factor.”
Full Text: Rand Paul’s speech on ‘Containment and Radical Islam’ | WashingtonExaminer.com
“What the United States needs now is a policy that finds a middle path. A policy that is not rash or reckless. A foreign policy that is reluctant, restrained by Constitutional checks and balances but does not appease. “
High-Yield Selloff Just Beginning? – MarketBeat – WSJ
“Martin Fridson, chief executive at FridsonVision LLC, a New York research firm, notes the Bank of America Merrill Lynch High-Yield Master II Index rose 1.5% from the end of last year through Jan. 25, a move that also coincided with a big move higher for the S&P 500.
For the high-yield market, “that was a huge move for a one-month period, considering the asset class’s lesser volatility relative to stocks,” Fridson said in an email.
Since Jan. 25, however, high yield has sold off while the stock market has continued chugging higher. Several analysts have said cash rotating out of bonds and into stocks can at least partly explain the recent trend.”
Pimco Sees Spain Bond Risk Rising on Rajoy Graft Allegations – Bloomberg
“Prime Minister Mariano Rajoy’s battle to rebut corruption allegations is adding to the risk of holding Spanish government debt, said Andrew Bosomworth, managing director at Pacific Investment Management Co.
“There is uncertainty as to the continuation of the government’s policies and its leadership,” said Bosomworth in a phone interview yesterday. “At least some questions remain unanswered. That leads to uncertainty in the market.””
Yale Suing Former Students Shows Crisis in Loans to Poor – Bloomberg
“Needy U.S. borrowers are defaulting on almost $1 billion in federal student loans earmarked for the poor, leaving schools such as Yale University and the University of Pennsylvania with little choice except to sue their graduates.
The record defaults on federal Perkins loans may jeopardize the prospects of current students since they are part of a revolving fund that colleges give to students who show extraordinary financial hardship.”
What Would Happen If America Got Free, ‘Nationwide’ WiFi? Google Wins, Carriers Lose – Forbes
“If you’re seeking an example of economic disruption, look no further than the Federal Trade Commission’s designs for Wi-Fi networks that cover large swathes of the United States. A proposal pending before an FCC panel aims to make access to the Internet and phone calls free and easy for millions of people across the United States. There’s a big if here. Having already run the political gauntlet for years, the proposal would face a logistical nightmare if approved.
But traditional mobile network carriers are apparently not taking any chances.”
Richard III: king’s face recreated from skull discovered under car park | UK news | guardian.co.uk
“Facial reconstruction using skeleton unearthed in Leicester shows what the last Plantagenet king may have looked like”
The Bárcenas scandal: “untrue — except for some things” | FT Alphaville
“Hmm. Rajoy reportedly didn’t clarify which things were true and which were not — although he had already denied allegations he took cash payments from a secret slush fund paid for by construction companies.
It should become a little clearer soon, however. El Pais, which has been reporting on the allegations for several days, has handed over the “secret papers” on which the claims centre to prosecutors, and Luis Bárcenas, the PP’s former treasurer at the heart of the claims, is today talking with prosecutors.”
Saturday delivery is over: USPS shifting to five-day delivery.
“USPS is built around a cross-subsidy model. The idea is that a monopoly on the right to deliver daily mail will generate lucrative profits in most cases and those profits will allow the USPS to cover the cost of unprofitable routes thus fulfilling its Universal Service Obligation. And for a long time it worked great. In fact the profits were so big that the USPS workforce was able to help itself to relatively generous compensation packages while still leaving plenty of money to run the postal service.
But the monopoly has become less lucrative and that’s not going to change in the future.”
Retail recession hits southern states | MacroBusiness
“Earlier today, Houses & Holes’ posted a summary of today’s retail sales figures for the month of December, which registered a seasonally-adjusted -0.2% fall over the month versus an expected 0.3% rise. October and November’s figures were also revised down to -0.1% and -0.2% respectively, from 0.0% and -0.1% previously. Hence, it was the third straight month that retail sales fell.
Retail sales are now decelerating strongly following the spike induced by one-off compensation payments for the introduction of the carbon tax, with annual sales growth falling to only 2.3% from 2.7% in November “
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